“Despite Trump’s Best Efforts, Economic Freedom Declined in the U.S. Last Year.”
So reads the headline of an article on pjmedia.com on March 17 by Tyler O’Neil.
Despite?
As regular readers of my posts know, I NEVER blame a writer for a headline if I don’t know that the writer supplied the headline. In this case, though, it doesn’t matter because here’s how Tyler O’Neil starts his article:
Despite President Donald Trump’s best efforts, economic freedom in the U.S. declined slightly over the past year, even as it increased across the world, according to the Heritage Foundation’s Index of Economic Freedom released Tuesday.
The reality, as the article goes on to show, is that some of the decline in economic freedom occurred despite Trump’s best efforts and some of it occurred because of his (best?) efforts.
He writes:
“Reckless deficit spending by Congress and the Administration under both parties explains the weakest Index indicators: government spending and fiscal health. Approval of the recently renegotiated NAFTA (now the United States—Mexico—Canada Agreement) should help to ensure continued growth, and resolution of the U.S.—China trade dispute could boost trade freedom,” the Heritage authors explain.
So both parties and Trump should be dinged for the high government spending. Trump tried a little to cut domestic spending, and failed, but he also tried, probably harder, to increase military spending, and succeeded. So despite his best efforts? No way.
Let’s give credit where credit is due, which O’Neil does:
The index gives Trump high marks for cutting regulations and signing the 2017 tax cuts. In fact, the U.S. economic freedom score for the tax burden increased sharply in 2019 due to the tax cuts, which went into effect in 2018.
But let’s not forget his tariffs, which were one of the few policy issues on which Trump gave his best effort. Fortunately, neither the authors of the Heritage Index nor O’Neil do forget the tariffs. O’Neil writes:
The Heritage authors also fault Trump for “protectionist trade policies” that will “drag on economic growth if newly applied tariffs are not reversed.” The president would insist that his tariffs are a response to unfair trade policies imposed by other countries, but however well-intentioned (and hopefully temporary), the tariffs do weaken America’s trade freedom.
READER COMMENTS
James Hanley
Mar 18 2020 at 6:36pm
If tax cuts are a plus for freedom, but deficits are a negative for freedom, then how do tax cuts that aren’t offset by spending cuts evaluated?
Speaking for myself, I’m something of a deficit hawk, and I’d prefer no tax cuts unless they are matched by spending cuts or produce an increase in tax revenues while spending is held constant.
David Henderson
Mar 18 2020 at 6:48pm
I don’t think deficits are a negative for freedom. I think government spending is a negative for freedom. I should have made that clear and not just let the Heritage quote speak for me.
Imagine two scenarios.
Scenario 1: Federal government spending is $4.5 trillion and federal tax revenue is $3.5 trillion. Resulting deficit: $1 trillion. This roughly approximates the situation before the horrible Trump-Democrat-Republican bill that Trump is about to sign goes into effect.
Scenario 2: Federal government spending is $4.3 trillion and federal tax revenue is 3.2 trillion. Resulting deficit: $1.1 trillion.
Assuming that federal spending in the two scenarios is distributed roughly in the same proportions among the various programs, I think we have more economic freedom in scenario 2. The reason: the government has a lower take of our resources.
Mark Z
Mar 18 2020 at 8:00pm
Would you then also say that tax cuts/increases don’t affect freedom? If you have a trillion dollar tax cut financed by a trillion dollar deficit, do they just cancel each other out? I guess this would be a ‘Ricardian equivalence’ view of economic freedom.
Henri Hein
Mar 18 2020 at 8:14pm
Milton Friedman made a similar point. Here is one instance (the whole Q&A is worth watching, but the point about spending starts just after the 13:00 minute mark.) It may be the case that views on deficits have changed since Friedman’s time, but I think equating taxation with total spending is a more helpful way to think about it than all the ways in which people try to construe deficit spending as a free lunch.
Michael
Apr 9 2020 at 3:28am
This video is one of my favorites.
Every budget is balanced.
There is no such thing as an unbalanced budget.
Don’t worry about debt or deficits.
Worry about total government spending.
The real tax is what government spends not what it collects.
Thaomas
Mar 19 2020 at 6:19pm
Any way you cut it Trump and his Republican allies wanted to cut corporate taxes to reduce the distortions that inevitably make different firms face different after tax rates of return on investment. (A zero rate would eliminate them entirely). Hurray! A pure pro-growth policy. But instead of recouping the revenues with increased taxes on personal income, they created a huge deficit while the economy was at full employment. This reduced saving and investment, not good for growth.
Plus he has made immigration more difficult and deported productive workers, another anti growth measure.
And of course the trade wars and sanctions on Iran. When have we ever had such an anti-growth President?
Jon Murphy
Mar 19 2020 at 9:35am
Are you asking about how they would be evaluated in the EFW Index?
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